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Seplat – Kini big deal?

Oil and gas firm Seplat Petroleum Development Company PLC on the 9th April priced its initial public offering at 210 pence a share, giving it a market capitalisation of £1.14 billion. The firm will be raising just over £300 million from the Initial Public Offering to find and develop new acquisitions, along with the repayment of a $48 million shareholder loan from MPI SA (formerly known as Maurel and Prom SA who are a french based Oil Production and exploration company). The CEO of Seplat mentioned their strategy is based on the three criteria:

organic growth

gas development

acquisitions due to multinational companies divesting their assets in Nigeria

Seplat have recorded consistent year on year growth under the guidance of chairman Mr A.B.C Orijako and have now become one of the leading indigenous independent Oil and Gas producers residing in Nigeria. They have almost trebled the amount of oil they produce per day to the amount of roughly 51 thousand from 14 thousand in August 2010 following the purchase of 3 oil blocks from Royal Dutch Shell.

Their growth has shown in their financials – For the year ended 31 December 2013 Seplat reported Revenue of $880 million, a year on year increase of 41%. Operating profit increased $149 million to US$479 million. Their EBITDA/Sales ratio of 54.4% for 2013 is nearly 12% over the benchmark average EBITDA/Sales ratio of 400+ Oil and Gas producer firms across the world. (Benchmark Source : http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.html). SEPLAT’s net debt as at 31 December 2013 was $141 million – a very manageable amount considering the consistent profits the form have recorded.

Another factor which works in the favour of the company and is driving their success is the fact that they are a home grown company. Historically Nigerians would rather do business with indigenous businesses due to the strong cultural values they tend to have which include the association with community and family cohesion. This can definitely go a long way in assisting the firm in its pursuit for continuous growth.

However with every pro, there’s a con. What risks face Seplat you may ask? Firstly and probably most importantly it is the issue which has plagued Nigeria for a very long time, an issue which I alluded to in a previous post highlighting the fallout between Sanusi and the Government – yes it’s theft. This is one of the main reasons why major oil companies have been retreating from their business operations in the country. Royal Dutch Shell lost nearly $1 billion through theft and various disruptions to its Nigerian oil and liquefied natural gas (LNG) operations in 2013 (Source: Reuters). This organised crime, otherwise known as oil bunkering is amounting to between 7-10% of the country’s total output and is creating a very lucrative black market so Seplat need to ensure more is done to eradicate this problem as this could potentially have more of an impact on revenues in the future.

Seplat became the first firm to have dual listing on both the London Stock Exchange (LSE) and Nigerian Stock Exchange with the price of a share through the Nigerian Stock Exhange equating to N576, roughly $3.52 per share. This made the firm the highest priced firm in the Oil and Gas sector in the exchange miles ahead of Total Nigeria which is trading around N173. The performance of the stock in the short term would depend on the strength of the NSE and whether the geopolitical and currency risks which have enslaved the country for so long will continue to have an impact just like how the Sanusi fallout caused the Nigerian Stock Exchange all share index to lose value mid February, however long term I feel this stock has fantastic potential looking at the numbers and it’s strong and efficient business model